Feb. 17: CFPB Updates This Week

Appraisal standards must include federal prohibitions against discrimination

The CFPB and leaders from across the federal government submitted a joint letter to The Appraisal Foundation (TAF), the private, nongovernmental organization that sets appraisal standards. The letter urges TAF to revise its draft Ethics Rule for appraisers to include a detailed statement of federal prohibitions against discrimination that exist under the Fair Housing Act and Equal Credit Opportunity Act. We are concerned that some appraisers may be unaware of these prohibitions and, in particular, that the draft Ethics Rule emphasizes that “[a]n appraiser must not engage in unethical discrimination,” implying that appraisers may engage in “ethical” discrimination, a concept foreign to current law and practice.

The letter marks the second time we have raised these concerns with TAF. On February 4, 2022, we urged TAF to provide clear guidance on existing legal standards related to appraisal bias in response to a prior draft of its Ethics Rule included in the Uniform Standards of Professional Appraisal Practice. In a blog post released with the letter, the CFPB noted that we are deeply troubled by the discriminatory statements the Federal Housing Finance Agency identified in some home appraisals, and the appraisal disparities for communities and borrowers of color described in both Freddie Mac  and Fannie Mae  studies. Moreover, the CFPB continues to see reports of appraisers who fail to follow the law and who base their value judgments on biased, unfounded assumptions about borrowers and communities.

For more than 50 years, federal law has forbidden racial, religious, and other discrimination in home appraisals. It is imperative that TAF provide appraisers clear, detailed, and unambiguous warnings about the requirements of federal law covering appraisal standards.

CFPB Finds One-Third Decline in Collections Items on Consumer Credit Reports

The Consumer Financial Protection Bureau (CFPB) released a report examining trends in credit reporting of debt in collections from 2018 to 2022. The report found the total number of collections tradelines on credit reports declined by 33%, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The share of consumers with a collection tradeline on their credit report decreased by 20% in the same timeframe. The CFPB also released today additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines.

Collections tradelines are furnished to credit reporting companies by third-party debt collectors. Commonly reported collection items include medical, rental and leasing, credit card, and utility accounts. Some third-party collectors work on behalf of original creditors for a fee (“contingency-fee-based debt collectors”) and others purchase accounts outright from creditors (“debt buyers”).

Unlike most other tradelines, debt collection tradelines rarely report positive information like on-time payments, and result in reporting of collections tradelines being almost entirely harmful to consumers. Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks. Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful.

This report is drawn from the CFPB’s Consumer Credit Panel, a nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies. Key findings of this report include:

  • The decline in collections tradelines was driven by fewer reports by contingency-fee-based debt collectors, who primarily collect on medical bills. Contingency-fee-based debt collectors reported 38% fewer collections tradelines from Q1 2018 to Q1 2022, while the number of collections reported by the subset of debt buyers increased by 9% over the same period. The number of unique contingency-fee-based debt collectors also declined by 18% (from 815 to 672). Medical bills account for 68.9% of furnished collections by contingency-fee-based debt collectors.
  • Concerns about data integrity and the associated costs that would come with furnishing disputed information may explain some of the decrease in collections tradelines on credit reports. CFPB market monitoring indicates that contingency-fee-based debt collectors are moving away from furnishing collections information to credit reporting companies in part due to their concerns about data integrity and their ability to comply with the Fair Credit Reporting Act, including dispute processing. CFPB’s analysis on medical debt reporting describes the difficulty of assuring the accuracy of medical bills, including the lack of timely access to healthcare providers’ billing and payment information.
  • Medical collections tradelines still constitute a majority of all collections on consumer credit reports. Despite the decline in collections reporting, medical collections tradelines still represent 57% of all collections items on credit reports. Upcoming changes to medical collections reporting, as previously announced by the nationwide consumer reporting companies, will remove small dollar (less than $500) and paid medical collection tradelines from consumer credit reports. While this will reduce the total number of medical collections tradelines, an estimated half of all consumers with medical collections tradelines will still have them on their credit reports, with the larger collection amounts (representing a majority of the outstanding dollar amount of medical collections) remaining on credit reports.

This report updates CFPB research published in 2019, which covered consumer credit records from 2004 to 2018. This report builds on prior work by the CFPB to analyze consumer credit reporting trends and to better understand the role of medical bills on credit reports.

Oct. 24, 2022 — The Federal Housing Finance Agency (FHFA) today published its new Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File. FHFA also launched UAD Aggregate Statistics Dashboards on its website to provide user-friendly visualizations of the newly available data.

“As home valuations are a vital component of the mortgage process, publishing transparent, aggregate data on appraisals provides useful information to the public while protecting borrowers’ personally identifiable information,” said Director Sandra L. Thompson. “Today’s announcement exemplifies our commitment to the development of a more efficient and equitable valuation system that ultimately reduces appraisal bias.”

The UAD Aggregate Statistics Data File and UAD Aggregate Statistics Dashboards give stakeholders and the public new access to a broad set of data points and trends found in appraisal reports. Additionally, the appraisal statistics may be grouped by neighborhood characteristics and geographic levels (national, state plus the District of Columbia and Puerto Rico, Metropolitan Statistical Areas (MSAs) or Metropolitan Divisions, county, and tract). Of note, the UAD Aggregate Statistics Data File is intended for users capable of using statistical software to extract and analyze data. In contrast, the UAD Aggregate Statistics Dashboards are for users of all types and are designed to provide user-friendly access through customized maps and charts.

​FHFA’s Division of Research and Statistics used 47.3 million UAD appraisal records collected from 2013 through the second quarter of 2022 on single-family properties to create a data file of UAD aggregate statistics in a manner that protects borrower privacy. Each UAD appraisal record includes information reported by appraisers on the Uniform Residential Appraisal Report (URAR). The current version of the URAR for single-family homes is Fannie Mae Form 1004 and Freddie Mac Form 70.

Related Links: 

(Jan. 14, 2022) Clarifying processes available for federal regulators to consider temporary waiver relief for appraisals by making “a clear distinction” between a request by a state appraiser regulatory agency and via petition by others is the aim of a rule proposed this week by the appraisal subcommittee of the FFIEC.

The appraisal subcommittee (ASC) said the reason behind the distinction is in federal law. According to the proposal published in the Federal Register, the ASC may, under the law, grant a temporary waiver only when the ASC or a state appraiser regulatory agency has made the statutorily required written determination with two parts. Those parts are: There is a scarcity of certified or licensed appraisers to perform appraisals in connection with federally related transactions (FRTs) in a state, or in any geographical political subdivision of a State; and such scarcity is leading to significant delays in the performance of such appraisals for FRTs.

“Accordingly, the proposed rules seek to clarify the procedural differences in processing a Request for Temporary Waiver accompanied by a written determination as compared to a Petition requesting the ASC exercise its discretion to initiate a temporary waiver proceeding,” the proposal states.

The proposal, the ASC said, clarifies who can file a request for a temporary waiver, what a request for the waiver should contain; ASC review of a request for temporary waiver for purposes of determining sufficiency of the document’s content and receipt by the ASC; and what is required in the event a request for temporary waiver is not deemed to be received, and thereby is either denied or referred back to the state appraisal agency.

For petitions, the ASC said the proposal clarifies: Who can file a petition requesting that the ASC exercise its discretionary authority to issue an order (thereby initiating a temporary waiver proceeding); what a petition should contain; the need to forward a copy of a petition to the state appraisal agency of the affected state; what the ASC may review for purposes of determining whether the petition may be processed for further action; what is required in the event a petition does not meet the requirements of its Contents of a Petition and thereby is either denied or referred back to the petitioner; and what further action may be taken.

The proposal would also expand the timeframe for an ASC determination of a temporary waiver (or waiver request) to 90 days from the current 45. It also clarifies the distinction between mandatory waiver termination versus discretionary waiver termination.

Comments are due on the proposal on March 14 (60 days).

LINK:

Appraisal Subcommittee; Appraiser Regulation; Temporary Waiver Requests

(Oct. 15, 2021) In other NCUA webinar developments, the agency said this week that, on Oct. 27, it is hosting an event focusing on bias in home appraisals and the racial homeownership gap. (This topic was the subject of in-depth discussion during last August’s 2021 NASCUS State System Summit (S3)). The agency said the 90-minute session, which gets underway at 2 p.m. ET, will highlight how systemic and institutionalized discrimination in the U.S housing system has created a wide wealth gap between races. NCUA said discussion will focus on strategies for closing the homeownership gap and eliminating appraisal bias, due to its direct impact on wealth accumulation for minority homeowners. The event will also explore, the agency said, the collaborative efforts of federal agencies and other stakeholders to initiate valuation and housing policy reforms for more equitable outcomes in communities of color.

LINK:

Understanding Bias in Home Appraisals and the Racial Homeownership Gap

(Aug. 20, 2021) Also featured at this year’s S3 conference:

  • Discussion of the employment challenges and opportunities before credit unions resulting from the coronavirus crisis by nationally recognized employment and human relations speaker (and president of the firm CUDoctor) Diane Reed.
  • A review of the economic landscape as the country struggles to emerge from the financial impact of the pandemic by Thomas Siems, senior economist and director of research for CSBS.
  • Insights into mortgage lending trends and strategic planning by Tracy Ashfield of Ashfield & Associates, a mortgage lending consulting firm for credit unions.
  • Dialog about the problems with the appraiser credentialing system, as well as inequality in real estate appraisals and the impact on borrowers and sellers by NCUA Deputy Director, Office of Examination and Insurance Tim Segerson, and NASCUS General Counsel and Executive Vice President Brian Knight.

“This year’s Summit offered a program aimed at providing insights to key challenges and opportunities to the state system, maximizing attendee engagement, generating creative problem solving, and supporting nationwide interaction to bolster and grow the state system for years to come,” said NASCUS’ Lucy Ito.

(Nov. 20, 2020) The threshold for exempting loans from special appraisal requirements applied to higher-priced mortgage loans under the Truth in Lending Act will remain at $27,200 in 2021, unchanged from this year’s threshold, according to an announcement this week by the CFPB and federal banking agencies.

The agencies said the threshold, effective Jan. 1, is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2020. The higher-priced loan rules were added to the Truth in Lending Act (TILA) by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The act added special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.

NASCUS posts all actions of the CFPB affecting the state credit union system on its “Latest CFPB updates” page of the NASCUS website.

LINK:
NASCUS ‘Latest CFPB updates’